Say on Pay

HR Policy Association in conjunction with the Center On
Executive Compensation is opposed to non-binding shareholder votes on executive
compensation – known as say on pay – as mandated by the Dodd-Frank Act because
it believes the vote will continue to cause companies to adopt pay programs that
are simply designed to win shareholder approval rather than those that are in
the best long-term interests of the company.The Center believes that ongoing dialog between a company and its shareholders
is the best way to ensure that pay is aligned with the shareholder
interests.While say on pay has resulted
in greater engagement between companies and large investors, it has also shifted
a disproportionate amount of influence to proxy advisory firms whose proxy
voting policies and analyses are likely to favor “cookie cutter” approaches to
executive compensation that may not reflect the company’s best long-term
interests.This effect is particularly
strong among smaller institutional investors who primarily rely on proxy
advisory firm recommendations and collectively can have significant ownership
in a company.As a result, the Center
believes say on pay may improperly influence boards of directors to make decisions
that they may not have otherwise in order to secure a high say on pay vote.Further, because say on pay votes typically
take place annually, the Center believes there is a risk that compensation
strategies that are best suited to unfold over the long term are at risk of
being changed to look better in the short term at the cost of shareholder
growth.Companies can confront the
various risks and offset the influence of proxy advisory firms at the largest
investors by engaging in an ongoing dialog, but they do not have a similar
opportunity with smaller investors, who often do not have the resources available
for the same type of engagement.In sum,
despite the increase in engagement with large institutional investors as a
result of say on pay, the Center believes that the negative aspects of the
mandatory vote override the benefits.